Variable Interest Entities

Consolidated Variable Interest Entities

Residual Trusts

The Company evaluates each securitization trust that funded its residential loan portfolio to determine if it meets the definition of a VIE, and whether the Company is required to consolidate the trust. The Company determined that it was the primary beneficiary of four securitization trusts in which it owned residual interests, and as a result, consolidated these trusts. As a holder of the residual securities issued by the trusts, the Company had both the obligation to absorb losses to the extent of its investment and the right to receive benefits from the trusts, both of which could potentially be significant to the trusts. In addition, as the servicer for these trusts, the Company concluded it had the power to direct the activities that most significantly impact the economic performance of the trusts through its ability to manage the delinquent assets of the trusts. Specifically, the Company had discretion, subject to applicable contractual provisions and consistent with prudent mortgage-servicing practices, to decide whether to sell or work out any loans that become troubled.

The Company was not contractually required to provide any financial support to the Residual Trusts. The Company may have, from time to time at its sole discretion, purchased certain assets or cover certain expenses for the trusts to cure delinquency or loss triggers for the sole purpose of releasing excess overcollateralization to the Company.

In November 2018, the Company sold its residual interests in the four remaining Residual Trusts that it previously consolidated for $41.0 million in cash proceeds. Upon the sale of the residual interests, the Company determined that it was no longer required to consolidate the four trusts as it was no longer the primary beneficiary of these trusts since (i) it did not hold the residual securities issued by the trusts and therefore had no obligation to absorb future losses to the extent of its investment and no right to receive future benefits from the trust, both of which could potentially be significant to the trusts, and (ii) it is adequately compensated and its role as servicer is of a fiduciary nature. In conjunction with the transaction, the Company deconsolidated the four Residual Trusts and removed related assets of $414.2 million and liabilities of $402.6 million from its consolidated balance sheet and recorded a servicing rights liability of $0.2 million. As a result of the sale and deconsolidation of the Residual Trusts, the Company recorded a net gain of $29.2 million, which includes a gain of $1.0 million relating to the reversal of deferred interest income recorded in other net fair value gains on the consolidated statements of comprehensive income (loss), a gain of $37.3 million relating to the reversal of deferred income recorded in other expenses, net on the consolidated statements of comprehensive income (loss), and a loss of $9.1 million relating to the sale and deconsolidation of the Residual Trusts recorded in other within other gains (losses) on the consolidated statements of comprehensive income (loss).

Non-Residual Trusts

The Company determined that it is the primary beneficiary of three remaining securitization trusts for which it does not own any residual interests at December 31, 2018. The Company does not receive economic benefit from the residential loans while the loans are held by the Non-Residual Trusts other than the servicing fees paid to the Company to service the loans. There were initially ten securitization trusts included in the Non-Residual Trusts; however, as discussed further below, seven of the trusts were deconsolidated during 2017 and 2018.

As part of a prior agreement to acquire the rights to service the loans in these securitization trusts, the Company had certain obligations to exercise mandatory clean-up calls for each of these trusts at their earliest exercisable date, which is the date the principal amount of each loan pool falls to 10% of the original principal amount. The Company would take control of the remaining collateral in the trusts when these calls are exercised. The Company fulfilled its obligation for its mandatory clean-up calls for two of the trusts in the second and third quarters of 2017 by making payments totaling $28.4 million. The Company took control of the remaining collateral, including residential loans and REO with a carrying value of $25.1 million and $0.1 million, respectively. Upon exercising these call obligations, the two trusts were deconsolidated and the underlying collateral was recorded on the Company's consolidated balance sheets.

On October 10, 2017, the Company entered into a Clean-up Call Agreement with a counterparty. The Company paid an inducement fee in the amount of $36.5 million to the counterparty, which was recorded within other assets on the consolidated balance sheets. With the execution of the Clean-Up Call Agreement, the counterparty assumed the Company’s mandatory obligation to exercise the clean-up calls for the eight remaining securitization trusts. In connection with the exercise of each clean-up call, the counterparty agreed to reimburse the Company for certain outstanding advances previously made by the Company with respect to the related trusts, up to an aggregate amount of approximately $6.4 million for the eight remaining trusts outstanding at that time. The Company continues to have certain rights and obligations related to the Non-Residual Trusts that are deemed to be variable interests that could potentially be significant to each trust. Additionally, as servicer of these trusts, the Company has concluded that it has the power to direct the activities that most significantly impact the economic performance of the trusts, and as such, the Company continued to consolidate these trusts on its consolidated balance sheets.

During the fourth quarter of 2017, the counterparty fulfilled its obligation for the mandatory clean-up call under the Clean-up Call Agreement on one of the remaining trusts by making a payment to the trust of $71.4 million, at which point the counterparty took control of the remaining collateral in the trust, including loans and REO with a carrying value of $63.8 million and $0.1 million, respectively. The trust was then deconsolidated. As a result of the counterparty exercising its clean-up call obligation and the deconsolidation of the trust, the trust recognized a gain of $7.2 million during the fourth quarter of 2017, which is included in other gains (losses) on the consolidated statements of comprehensive income (loss). Additionally, during the fourth quarter of 2017, the Company expensed $7.2 million of the inducement fee, which is included in general and administrative expenses on the consolidated statements of comprehensive income (loss).

During the period from February 10, 2018 through December 31, 2018, the counterparty under the Clean-up Call Agreement for the Non-Residual Trusts fulfilled its obligation for the mandatory clean-up call on four of the remaining trusts by making payments to the trusts of $181.4 million, at which point the counterparty took control of the remaining collateral in the trusts, including loans and REO with a carrying value of $159.3 million and $0.6 million, respectively. The trusts were then deconsolidated. As a result of the counterparty exercising its clean-up call obligation and the deconsolidation of the trusts, the trusts recognized gains of $18.5 million during the period from February 10, 2018 through December 31, 2018. Additionally, the Company expensed $17.8 million and $0.5 million of the Clean-up Call Agreement inducement fee for the period from February 10, 2018 through December 31, 2018 and the period from January 1, 2018 through February 9, 2018, respectively. The Clean-up Call Agreement inducement fee had a remaining balance of $11.0 million at December 31, 2018, which is included in other assets on the consolidated balance sheets.

For seven of the original ten Non-Residual Trusts and four securitization trusts that had not been consolidated, the Company, as part of an agreement to service the loans in all eleven trusts, also had an obligation to reimburse a third party for the final $165.0 million in LOCs, if drawn, which were issued to the eleven trusts by a third party as credit enhancements to these trusts. As the LOCs were provided as credit enhancements to these securitizations, the trusts would draw on these LOCs if there were insufficient cash flows from the underlying collateral to pay the bondholders. As a result of the Clean-up Call Agreement detailed above, the Company's obligation to reimburse a third party for the final $165.0 million in LOCs, if drawn, was terminated. Under the Clean-up Call Agreement, the Company is obligated to reimburse the counterparty for amounts drawn on the LOCs in excess of $17.0 million in the aggregate related to certain of the remaining securitization trusts from July 1, 2017 through each individual call date.

Servicer and Protective Advance Financing Facilities

The Company has interests in financing entities that acquire servicer and protective advances from certain wholly-owned subsidiaries. The financing subsidiaries are deemed to be VIEs due to the design of the entities, including restrictions on its operating activities. The Company is the primary beneficiary of these financing subsidiaries and, accordingly, consolidates the financing subsidiaries. The subsidiaries issue or enter into notes supported by collections on the transferred advances.

As discussed further in Note 18, during the fourth quarter of 2017, the notes issued under these financing facilities were purchased by a subsidiary with funds from a WIMC Securities Master Repurchase Agreement. The outstanding notes were pledged as collateral under the WIMC Securities Master Repurchase Agreement at December 31, 2017.

Revolving Credit Facilities-Related VIEs

Certain revolving credit facilities utilize subsidiaries and/or trusts, collectively referred to as the entities, which are considered VIEs. The Company transfers certain assets into the entities created as a mechanism for holding assets as collateral for the revolving credit facilities in order to facilitate the pledging of assets to the revolving credit facilities. The entities have no equity investment at risk, making them variable interest entities. The Company’s continuing involvement with the entities is in the form of servicing the assets and through holding the ownership interests of the entities. Accordingly, the Company concluded that it is the primary beneficiary of the entities and, therefore, the Company consolidated the entities. All of the subsidiaries and/or trusts are separate legal entities and the collateral held by the entities are owned by them and are not available to other creditors.

The Revolving Credit Facilities-Related VIEs are funded with HECMs and real estate owned that were repurchased from Ginnie Mae securitization pools utilizing warehouse facilities. These assets collateralize certain master repurchase agreements, which are not included in the Revolving Credit Facilities-Related VIEs. Refer to Note 19 for additional information.

Reverse Loan Buyout VIE

In October 2018, the Company closed on a transaction in which 100% of the participating interests in certain existing HECMs and real estate owned that were previously repurchased from Ginnie Mae securitization pools, and financed under existing warehouse facilities, were sold to a wholly-owned subsidiary managed by the Company. The participating interests were then pledged to a third-party lender under a note purchase agreement to secure the issuance of variable funding notes. The Company continues to service the loans under a servicing agreement with the wholly-owned subsidiary. The wholly-owned subsidiary is deemed to be a VIE due to the design of the entity, including restrictions on its operating activities and lack of equity at risk. As servicer of the loans and manager of the wholly-owned subsidiary, the Company determined that it was the primary beneficiary of the VIE and as a result, consolidated this VIE.

Included in the tables below are summaries of the carrying amounts of the assets and liabilities of consolidated VIEs (in thousands):



	Successor
	December 31, 2018
	Non-Residual Trusts		Servicer and Protective Advance Financing Facilities		Revolving Credit Facilities-Related VIEs		Reverse Loan Buyout VIE		Total
Assets
Restricted cash and cash equivalents	$	3,467	$	8,762	$	—	$	—	$	12,229
Residential loans at fair value	117,410		—		—		207,524		324,934
Receivables, net	1,945		—		133		1,760		3,838
Servicer and protective advances, net	—		239,769		—		4,961		244,730
Other assets	444		547		10,804		11,297		23,092
Total assets	$	123,266	$	249,078	$	10,937	$	225,542	$	608,823

Liabilities
Payables and accrued liabilities	$	—	$	446	$	—	$	1,465	$	1,911
Servicing advance liabilities	—		218,291		—		—		218,291
Warehouse borrowings	—		—		—		225,399		225,399
Mortgage-backed debt	131,313		—		—		—		131,313
Total liabilities	$	131,313	$	218,737	$	—	$	226,864	$	576,914




	Predecessor
	December 31, 2017
	Residual Trusts		Non-Residual Trusts		Servicer and Protective Advance Financing Facilities		Revolving Credit Facilities-Related VIEs		Total
Assets
Restricted cash and cash equivalents	$	12,687	$	8,020	$	23,669	$	—	$	44,376
Residential loans at amortized cost, net	424,420		—		—		—		424,420
Residential loans at fair value	—		301,435		—		—		301,435
Receivables, net	—		5,608		—		216		5,824
Servicer and protective advances, net	—		—		446,799		—		446,799
Other assets	9,924		1,072		1,301		27,540		39,837
Total assets	$	447,031	$	316,135	$	471,769	$	27,756	$	1,262,691

Liabilities
Payables and accrued liabilities	$	2,178	$	—	$	908	$	—	$	3,086
Servicing advance liabilities ⁽¹⁾	—		—		444,563		—		444,563
Mortgage-backed debt	387,200		348,682		—		—		735,882
Total liabilities	$	389,378	$	348,682	$	445,471	$	—	$	1,183,531

__________


(1)	The notes outstanding under Servicer and Protective Advance Financing Facilities were acquired by a subsidiary during the fourth quarter of 2017, primarily with proceeds from the WIMC Securities Master Repurchase Agreement. These notes are therefore eliminated upon consolidation at December 31, 2017.

The assets of the consolidated VIEs are pledged as collateral to the servicing advance liabilities, mortgage-backed debt, revolving credit facilities and variable funding notes and are not available to satisfy claims of general creditors of the Company. The mortgage-backed debt issued by each consolidated securitization trust is to be satisfied solely from the proceeds of the residential loans and other collateral held in the trusts, while the servicing advance liabilities related to the trusts are to be satisfied from the recoveries or repayments from the underlying advances and the variable funding notes related to the Reverse Loan Buyout VIE, which are included in warehouse borrowings, are to be satisfied from proceeds received on the underlying assets. The consolidated VIEs are not cross-collateralized and the holders of the mortgage-backed debt issued by the trusts and lenders under the Servicer and Protective Advance Financing Facilities and Reverse Loan Buyout VIE do not have recourse to the Company. Refer to Note 21 for additional information regarding the mortgage-backed debt, Note 18 for additional information regarding servicing advance liabilities and Note 19 for additional information regarding warehouse borrowings.

Prior to the adoption of fresh start accounting effective February 10, 2018, the Company accounted for the residential loans and mortgage-backed debt of the Residual Trusts at amortized cost. During the period from January 1, 2018 through February 9, 2018 and the year ended December 31, 2017, the Residual Trusts recognized interest income earned on the residential loans and interest expense incurred on the mortgage-backed debt in interest income on loans and interest expense, respectively, on the consolidated statements of comprehensive income (loss). Additionally, the Company recorded a provision for its estimate of probable incurred credit losses associated with the residential loans as provision for loan losses, which was included in other expenses, net on the consolidated statements of comprehensive income (loss). Interest receipts on residential loans and interest payments on mortgage-backed debt were included in operating activities, while principal payments on residential loans were included in investing activities and payments on mortgage-backed debt are included in financing activities on the consolidated statements of cash flows.

In connection with the adoption of fresh start accounting effective February 10, 2018, the Company changed its method of accounting for the residential loans and mortgage-backed debt of the Residual Trusts from amortized cost to fair value.

The change in fair value of the assets and liabilities of the Residual Trusts subsequent to February 10, 2018 and the change in fair value of the assets and liabilities of the Non-Residual Trusts are included in other net fair value gains (losses) on the consolidated statements of comprehensive income (loss). Included in other net fair value gains (losses) is the interest income that is expected to be collected on the residential loans, the interest expense that is expected to be paid on the mortgage-backed debt, and the accretion of fair value. The non-cash component of other net fair value gains (losses) is recognized as an adjustment in reconciling net income or loss to net cash provided by or used in operating activities on the consolidated statements of cash flows. Principal payments on residential loans, draws on receivables, proceeds received from the exercise of mandatory call obligations and the cash outflow from the deconsolidation of the Non-Residual Trusts subsequent to the exercise of mandatory call obligations are included in investing activities while payments on mortgage-backed debt are included in financing activities on the consolidated statements of cash flows.

Interest expense associated with the Servicer and Protective Advance Financing Facilities is included in interest expense on the consolidated statements of comprehensive income (loss). Changes in servicer and protective advances are included in operating activities while the issuances of and payments on servicing advance liabilities are included in financing activities on the consolidated statements of cash flows.

The change in fair value of the residential loans of the Revolving Credit Facilities-Related VIEs and of the Reverse Loan Buyout VIE are included in net fair value gains on reverse loans and related HMBS obligations on the consolidated statements of comprehensive income (loss). Declines in the value of real estate owned are recorded as adjustments to the carrying amount through a valuation allowance and are recorded in other expenses, net on the consolidated statements of comprehensive income (loss). Interest expense associated with the variable funding notes relating to the Reverse Loan Buyout VIE is included in interest expense on the consolidated statements of comprehensive income (loss).

Unconsolidated Variable Interest Entities

The Company has variable interests in VIEs that it does not consolidate as it has determined that it is not the primary beneficiary of the VIEs.

Other Servicing Arrangements

The Company is involved with other securitization trusts as servicer of the financial assets of the trusts. The Company’s servicing fees are anticipated to absorb more than an insignificant portion of the returns of the trusts and the Company has considered its contract to service the financial assets of the trusts as a variable interest. Typically, the Company’s involvement as servicer allows it to control the activities of the trusts that most significantly impact the economic performance of the trusts; however, based on the nature of the trusts, the obligations to its beneficial interest holders are guaranteed. Further, the Company’s involvement as servicer is subject to substantive kick-out rights held by a single party, and there are no significant barriers to the exercise of those kick-out rights. As a result, the Company has determined that it is not the primary beneficiary of those trusts and those trusts are not consolidated on the Company’s consolidated balance sheets. The termination of the Company as servicer to the financial assets of the trusts would eliminate any future servicing revenues and related cash flows associated with the underlying financial assets held by the trusts.

The maximum exposure to loss for VIEs, which is equal to the carrying value of assets recognized on the consolidated balance sheets, is immaterial as of December 31, 2018 and 2017.